Pearson Edexcel

International Advanced Level

Accounting
Paper 1: The Accounting System and Costing

Tuesday 17 May 2016 – Afternoon Paper Reference

Source Booklet WAC11/01
Do not return this source booklet with question paper.

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©2016 Pearson Education Ltd.

1/1/1/1/1/1/1/1
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 SECTION A
Answer BOTH questions in this section.
1 Azlina and Siti are in partnership retailing clothing. Their partnership agreement
states that:
• The agreed capital is: Azlina £50 000 and Siti £25 000.
• Profits and losses will be shared equally.
• Salaries will be paid: £5 000 per annum to Azlina and £5 000 per annum to Siti.
• Interest on capital is allowed at the rate of 5% per annum.
• There will be no interest charged on drawings.
• Azlina made a loan to the business of £20 000 on 1 January 2014. Interest is payable
at the rate of 8% per annum. The loan is repayable in full on 31 December 2016.
The following balances were extracted from the books on 31 March 2016:
£
Capital accounts 1 April 2015:
Azlina 50 000
Siti 25 000
Current accounts 1 April 2015:
Azlina 400 Dr
Siti 200 Cr
Drawings (excluding salaries paid):
Azlina 4 000
Siti 1 500
Non-current assets (at cost):
Freehold premises 128 000
Delivery vehicles 12 000
Fixtures and fittings 14 000
Provisions for depreciation:
Delivery vehicles 8 400
Fixtures and fittings 5 600
Loans:
8% Loan from Azlina 20 000
5% Bank loan (repayable 1 January 2018) 40 000
Inventory 1 April 2015 19 500
Trade receivables 7 500
Trade payables 9 800
Bank overdraft 9 520
Revenue 117 300
Purchases 54 000
Purchase returns 1 700
Commission receivable 900
Rates 4 750
Wages and salaries 24 500
Electricity and water 8 150
Sundry expenses 10 300
Allowance (Provision) for doubtful debts 180

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 Additional information at 31 March 2016
(1) Inventory £13 800
(2) Wages and salaries include the salaries paid in full to the partners.
(3) Rates £250 were prepaid and electricity £600 was owing.
(4) No interest has been paid on the 8% loan from Azlina or the 5% bank loan for
the year.
(5) Depreciation is to be charged as follows:
• no depreciation on the freehold premises
• delivery vehicles at the rate of 25% per annum reducing balance
• fixtures and fittings at the rate of 10% per annum straight line.
(6) The allowance (provision) for doubtful debts is to be maintained at 4% of trade
receivables.
Required
(a) Prepare for the partnership the:
(i) Statement of Profit or Loss and Other Comprehensive Income (including an
appropriation section) for the year ended 31 March 2016
(18)
(ii) Current accounts of the partners for the year ended 31 March 2016
(6)
(iii) Statement of Financial Position at 31 March 2016.
(14)
The business premises of Azlina and Siti are located in a retail area that is growing
in popularity with shoppers. Azlina and Siti have plans to take advantage of this
popularity by expanding their business in the next financial year. They propose to:
(1) Undertake building work to expand the sales area available.
(2) Substantially increase the level of inventory in the business.
(3) Redecorate the premises.
(4) Employ an additional sales assistant.
(5) Purchase an electronic bar code system for inventory.
(b) State whether each of the above proposals is capital expenditure or revenue
expenditure.
(5)
To finance the expansion of the business Azlina and Siti will have to obtain finance in
the form of additional bank loans.
(c) Evaluate whether Azlina and Siti should expand their business.
(12)

(Total for Question 1 = 55 marks)

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2 Holborn Products manufactures parts for the motor industry. The following balances
were extracted from the books on 30 April 2016.
£
Inventories at 1 May 2015:
Raw material 23 400
Work in progress 52 000
Finished goods 72 000
Purchases of raw materials 97 800
Carriage inwards 8 450
Manufacturing wages 81 400
Production management salaries 59 500
Non-current assets:
Manufacturing equipment
Cost 280 000
Provision for depreciation 160 000
Computing equipment
Cost 150 000
Provision for depreciation 90 000
Computing technician wages 40 000
Factory consumables 45 200
Rent and rates 16 000
Electricity and water charges 15 600
General expenses 21 000
Property maintenance expenses 11 000
Provision for unrealised profit 12 000

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 Additional information at 30 April 2016
(1) Inventories:
Raw materials £16 950
Work in progress £58 000
Finished goods £90 000
(2) Manufacturing wages of £2 600 were owing.
(3) All of the costs of computing are charged 60% to manufacturing and 40% to
administration.
(4) Depreciation is charged on all non-current assets using the reducing
balance method:
(i) manufacturing equipment at the rate of 20% per annum
(ii) computing equipment at the rate of 30% per annum.
(5) Factory consumables of £35 300 are direct.
(6) Half of the general expenses relate to manufacturing.
(7) Property maintenance expenses of £1 800 are owing.
(8) Rent and rates, electricity and water, property maintenance expenses are
allocated 75% to manufacturing and 25% to administration.
(9) Production is transferred to finished goods at cost plus 20%.
Required
(a) Prepare, for the year ended 30 April 2016, the:
(i) Manufacturing Account
(21)
(ii) Provision for Unrealised Profit on Manufactured Goods Account
(5)
(iii) Manufacturing Wages Account.
(5)

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 The owner of Holborn Products is proposing changes to the way in which financial
statements are prepared. There are four proposals.
Proposal 1
Include a sum for the skill of the workforce as a non-current asset in the Statement of
Financial Position.
Proposal 2
Charge the full cost price of non-current assets to the year in which they are
purchased.
Proposal 3
No longer provide for unrealised profit by removing the provision for unrealised
profit on manufactured goods from the accounts.
Proposal 4
Charge the drawings of the owner to the Statement of Profit or Loss and Other
Comprehensive Income.
(b) State, giving reasons for your answer, an accounting principle or concept that
would not be complied with if each of the proposals 1, 2, 3 and 4
were introduced.
(12)
(c) Evaluate the use of International Accounting Standards (IAS) in the preparation of
financial statements.
(12)

(Total for Question 2 = 55 marks)

TOTAL FOR SECTION A = 110 MARKS

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 BLANK PAGE
QUESTION 3 STARTS ON THE NEXT PAGE.

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 SECTION B
Answer THREE questions from this section.
3 Channa commenced business as a market trader on 1 May 2015. His capital was an
inventory of £4 000 and cash from an 8% bank loan of £5 000 repayable in 2018.
The following balances were extracted from the books at 30 April 2016.
£
Revenue 90 000
Purchases 60 000
Wages 12 000
General expenses 8 200
Rental of market stall 7 200
Fixtures and fittings 2 500
Additional information at 30 April 2016
(1) Inventory £6 000
(2) General expenses included £200 for bank loan interest.
(3) Fixtures and fittings were valued at £1 700.
Required
(a) Prepare the Statement of Profit or Loss and Other Comprehensive Income for the
year ended 30 April 2016.
(5)
(b) Calculate the:
(i) rate of inventory turnover
(3)
(ii) net profit for the year as a percentage of revenue.
(3)
Channa has been offered shop premises and is considering moving his business from
market trading to a shop. To assist him to make that decision the following estimates
were made for the year ended 30 April 2017:
• Revenue volume would increase by 331/3%. Selling prices would also be increased
by 20%.
• The inventory on 30 April 2017 would be £12 000.
• The rate of inventory turnover would be 8 times for the year.
• The rent of the shop would be £18 200 per annum.
• Wages and general expenses would rise by 25%.
• Additional fixtures and fittings costing £18 500 would be purchased. At the end of
the year all fixtures and fittings would have a value of £15 000.
• To finance the move to the shop the 8% bank loan would be increased to £25 000.

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 (c) Prepare the Forecast Statement of Profit or Loss and Other Comprehensive
Income for the first year of trading in the shop ending 30 April 2017.
(10)
(d) Calculate the forecast net profit for the year as a percentage of revenue.
(3)
(e) Evaluate whether Channa should move his business into the shop premises.
(6)

(Total for Question 3 = 30 marks)

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4 The following is a schedule of non-current assets from the records of Jabir.

Non-current Balances at 1 May 2015 For the year ended 30 April

assets 2016
Cost Provision for Additions at Disposals at
depreciation cost cost
£ £ £ £
Land and
85 000 8 000 20 000 -
buildings
Computers 30 000 9 200 10 000 5 000
Fixtures and
9 500 4 300 1 500 -
fittings

The depreciation policy of Jabir is as follows:

• No depreciation is charged on land, which cost £35 000. Depreciation is charged
on buildings at the rate of 2% per annum using the straight line method.
• Computers are depreciated at the rate of 20% per annum using the straight
line method.
• Fixtures and fittings are depreciated at the rate of 10% per annum using the
straight line method.
• A full year’s depreciation is charged in the year of addition (purchase).
• A half year’s depreciation is charged in the year of disposal (sale).

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 Additional information
(1) All non-current asset additions were paid for by cheque.
(2) All disposals were transferred to the Disposals Account.
(3) The computer disposed of in the year had been purchased on 1 January 2014.
Required
(a) Explain why Jabir needs to charge depreciation on his non-current assets.
(4)
(b) Calculate the depreciation to be charged on the computers for the year ended
30 April 2016.
(2)
(c) Prepare, for the year ended 30 April 2016, the:
(i) Computers Account
(5)
(ii) Computers – Provision for Depreciation Account.
(5)
(d) Complete in the question paper the extract from the Statement of Financial
Position at 30 April 2016 for the non-current assets.
(8)

Accumulated
Non-current assets Cost Carrying value
depreciation

£ £ £

Land and buildings

Computers

Fixtures and fittings

Total

(e) Evaluate Jabir’s depreciation policy for computers.

(6)

(Total for Question 4 = 30 marks)

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5 Hiruni makes parts for washing machines. Her largest contract is to supply part PNC3
to a major manufacturer, Wash the World.
The following information is available for part PNC3:
• Manufacture of part PNC3 is in batches of 200
• Raw materials cost £303.70 per batch
• Direct labour per batch – 30 hours Assembly
20 hours Finishing
Direct labour is paid at the rate of £5 per hour for Assembly and £4 per hour
for Finishing
• Overheads:
£
Rent and rates 16 000
Employment insurance 9 000
Premises maintenance 12 000
Management salaries 18 000
There are three departments, two production departments, Assembly and Finishing
and one service department, Administration
Additional information
Assembly Finishing Administration
Floor area occupied (sq m) 4 000 2 400 1 600
Direct labour hours (per annum) 9 200 5 600 3 200
Administration costs are reapportioned to the production departments on the basis
of 50% to Assembly and 50% to Finishing.
Overheads are recovered on the basis of direct labour hours
• Mark-up
Hiruni adds 15% to production cost for her profit.
Required
(a) Explain the terms:
(i) semi-fixed cost
(2)
(ii) semi-variable cost.
(2)
(b) Explain the difference between allocated overheads and apportioned
overheads.
(4)

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 (c) Calculate the:
(i) total overhead for each of the three departments
(7)
(i) overhead recovery rate to be used in each of the Assembly and
Finishing Departments.
(2)
(d) Calculate the selling price of one part PNC3.
(7)
Hiruni has been requested by Wash the World to reduce the price of part PNC3 from
the existing £5 per part to £4 per part.
(e) Evaluate whether Hiruni should meet Wash the World’s request to reduce her
selling price for part PNC3.
(6)

(Total for Question 5 = 30 marks)

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6 Dula prepared draft financial statements that showed a profit of £72 000 for the year
ended 30 April 2016. On further inspection the following errors were discovered:
(1) The entries for a credit sale of goods to Ruwan, £750, had been reversed in
the books.
(2) Some goods had been shown in the closing inventory count at their retail value
of £1 350. All goods are marked-up by 50%.
(3) Motor vehicle expenses of £400 had been recorded in the Motor Vehicles
Account. Depreciation of £80 had been charged wrongly in the draft financial
statements.
(4) Rent receivable of £2 300 had been correctly entered in the Bank Account and
debited to the Rent Receivable Account.
(5) Dula had paid herself a salary of £6 100, which had been recorded in the
Wages Account.
Required
(a) State four types of error that will not affect the balancing of the books.
(4)
(b) Prepare the journal entries to correct the errors (1) to (5). Narratives are
not required.
(12)

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 (c) Complete the table, in the question paper, showing the revised profit for the year
after the correction of all errors.
(8)

Draft profit for the year 72 000

Increase Decrease
Profit Profit

Error £ £

The entries for a sale of goods to

(1) Ruwan, £750, had been reversed in
the books
Some goods had been shown
in the closing inventory count
(2)
at their retail value of £1 350. All
goods are marked-up by 50%
Motor vehicle expenses of £400
had been recorded in the Motor
(3) Vehicles Account. Depreciation of
£80 had been charged wrongly in
the draft financial statements
Rent receivable of £2 300 had
been correctly entered in the Bank
(4)
Account and debited to the Rent
Receivable Account
Dula had paid herself a salary of
(5) £6 100, which had been recorded
in the Wages Account.
Total increase profit and decrease
profit

Revised profit for the year

A friend of Dula has advised her that the use of an information and communications
technology (ICT) accounting software package would avoid errors and provide many
other benefits.
(d) Evaluate the use of information and communications technology (ICT) accounting
software packages.
(6)

(Total for Question 6 = 30 marks)

TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS

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